Budget and Finance Affiliate Discusses Maintenance of Effort, County Income Tax Case

MACo’s affiliate organization, the Maryland Association of County Budget and Finance Officers, met on April 28 to discuss the 2014 legislative session and a number of budget related topics.  Kristy Michel, Chief Operating Officer, Maryland State Department of Education, attended the meeting to discuss State Aid for Education and Maintenance of Effort (MoE)  issues; and Margaret Ann Nolan, Howard County Solicitor, attended to provide an update on a recent county income tax case, Maryland State Comptroller of the Treasury v. Brian Wynne, which has been appealed to the U.S. Supreme Court.

State Aid for Education and Maintenance of Effort

Ms. Michel provided an overview of MoE and recent legislative changes that will affect the calculation. Since the changes to MoE were enacted in 2012, additional changes were made in Net taxable income (NTI), which is used as an indicator to measure wealth within the education formulas.   With this change, NTI would be measured based on tax returns filed by November 1 of each year, instead of the current September 1.  This change is being phased-in over five years, with additional education grants being given to counties whose formula aid is higher using the November 1 date. However, this change in calculating NTI, has affected other components of the education formulas.  Beginning in fiscal 2015, a county that has an education effort below the five-year statewide average education effort is required to increase its MOE payment to the school board in years when its local wealth base is increasing. The required increase is the lesser of the increase in a county’s per pupil wealth, the average statewide increase in per pupil local wealth, or 2.5%. The phasing in of the November date for NTI creates uncertainty as to which date should be used to calculate the additional MoE payment. Using the September 1 date for fiscal 2015, the average statewide increase was negative, meaning that the “kicker” provision, as it has been called, would not apply to any jurisdiction in fiscal 2015. Using the November 1 date, three jurisdictions would have been required to increase their MoE appropriation. The General Assembly adopted language clarifying that the September 1 date would be used to calculate wealth in the formula during the phase-in of the date change for NTI. The November 1 date will be used beginning in fiscal 2018.

During the discussion with budget and finance directors, Ms. Michel stated she was open to discussing improvements in the MoE process.

Maryland State Comptroller of the Treasury v. Brian Wynne

Ms. Nolan provided an overview and status update of the Maryland State Comptroller of the Treasury v. Brian Wynne case. At issue in this case is whether the failure to allow a credit against the county income tax violates the commerce clause because it discriminates against interstate commerce. The case has been appealed to the Supreme Court and the Court has asked the U.S. Solicitor General to comment expressing the view of the United States. In his response, the U.S. Solicitor General concluded that the Court should review the decision of the Maryland Court of Appeals.  The Supreme Court has scheduled the case for Conference on May 15. If the Supreme Court  takes up the case, it will likely be argued in the fall of 2014 with a decision any time thereafter. If it does not take up the case and the Maryland Court of Appeals decision stands, counties could be faced with refunding more than $190 million in local income taxes, plus interest, for prior years and providing approximately $50 million a year in credits prospectively.

Other agenda items included a 2014 legislative wrap up by MACo’s Legislative Director, Andrea Mansfield, the county role in bail reform and next steps, and a discussion of the county financial management presentation used in a course that is offered by the Academy of Excellence for Local Government.

The next meeting of the affiliate will be held during the MACo Summer Conference at the Ocean City Convention Center on Friday, August 15.

Meeting Agenda and Handout
2014 Legislative Highlights and Statistics